In my neighborhood, which is a type of Planned Unit Development (PUD), the city installed the wrong water meters in some homes and neglected to put in water meters altogether in others. This results in some households paying too much for water, while other residences aren’t being billed at all. If this continues, it’s just a matter of time before the non-billed households will either feel shame or be shamed for using water.
The resolution is for the community to split the water utility cost evenly across the board -- at least until the city installs the correct water meters. Not everyone is happy with this solution.
Enter the ratio utility billing system (RUBS), a more sophisticated way of meting out utility payments for apartment dwellers who don’t have their own utility meters. Not having a submeter for individual units is mostly found in older buildings where there is only a single meter for the entire building or property. Utilities typically included in RUBS are water, sewer, gas, electricity, and trash.
The property owner or property manager of a building with only one general meter can do as my neighborhood chose to do and bill every tenant the same, but RUBS provides a fairer method.
What is RUBS?
Under RUBS real estate, the cost a tenant pays for their utility usage is based on factors that would likely affect the cost of utilities in a household, such as the square footage of the unit, how many people occupy the unit, the types of appliances owned, etc. Each household would have a unique formula.
Ideally, landlords would not need to deal with a tenant’s utility usage at all; the responsibility would fall directly on the tenant. And that happens in newer buildings where each unit has a dedicated meter. But in buildings that have only one meter for the whole building, the landlord would typically be responsible for the entire utility bill.
Most landlords will not take on the expense of paying for their tenants’ utility usage. That cost could quickly get out of control for the landlord. If the landlord does pay the utility bill, in cases where utilities are included in the rental price, the landlord has probably increased rent across the board to pay for the utilities.
Pros of RUBS
RUBS can be the best solution to the problem of no submeters. Here are some benefits:
RUBS can save tenants money: Some tenants, thinking their utilities are free, might be tempted to be careless or cavalier about their utility usage. Air conditioner set at 68 degrees all day? Half-hour hot-water showers? Leaving the lights and TV on 24/7? All that can happen if people aren’t paying for their utilities. And if the landlord has rising utility costs from tenants overusing utilities, that landlord will most likely pass those extra costs onto the tenants.
Tenants tend to be more conservation minded: Because RUBS is based on utility costs, many residents will be more conservative to keep the costs down for themselves and their neighbors.
RUBS comes close to fair share payments: Rather than paying more than their fair share, in the case of a landlord billing everyone the same amount, or paying increased rent, tenants without their own meter can come as close to paying their fair share as possible. The RUBS system will never be as accurate as a dedicated meter, but it comes in a close second.
RUBS can save a landlord money: One solution to tenants not having their own meter would be to install meters on each unit, but that involves spending money. RUBS allows a landlord to charge tenants for utilities, in a pretty fair manner, without putting up any capital.
Cons of RUBS
A communal utility billing system for utility usage: What could possibly go wrong? Although RUBS is a good solution to the non-meter problem, it’s not without its problems.
Landlords can’t just implement RUBS: Tenants must sign off on agreeing to RUBS in a lease. In the case of a potential new tenant, the landlord might need to turn down an applicant if they won’t sign.
Potential tenants might be turned off: Some people care greatly about having their own utility meter. Once a potential tenant finds out they need to pay through a RUBS system, they might choose a different building.
Tenants can refuse RUBS: Landlords can’t implement RUBS to existing tenants without having them sign a lease addendum allowing this. If they won’t sign, the landlord can’t use RUBS on their unit.
The deadbeat factor: One person, usually the landlord or property manager, pays the utility bill. That person is then reimbursed when tenants pay their RUBS bill. Some people, however, are deadbeats. Landlords can’t just shut down the utilities, however. The landlord will need to get the deadbeat tenant to pay, evict them (or threaten to), or raise that tenant’s rent if that landlord wants to be made whole.
It may not be allowed: Some municipalities don’t allow RUBS. A California case, for example, went to court on this issue. Landlords, under a rent control situation, did not want RUBS fees to count as part of the rent. If the fees were and if landlords were already at the top of the rent control ceiling, they would not be able to charge more for anything, including RUBS. The city, however, decided that RUBS was to be part of the rent. The takeaway is that landlords need to find out whether RUBS is allowed in their locale before implementing it.
How to decide whether to implement RUBS
If you’re a landlord of a multifamily property without submeters, you might want to implement RUBS. It could be tricky if most of the tenants are existing tenants who might be resistant to the change. But if the building is mostly or completely vacant, it should not be too difficult to implement a RUBS system.
Another consideration is cost. If the cost of submetering won’t break the bank for you, it might be easier in the long run to go that route. Having tenants responsible for their own utilities is almost always preferable to needing to manage utilities for your tenants.
How to implement a RUBS system
The easiest way to implement a RUBS system is to use a third party that will administer the RUBS program. These companies generally charge a monthly fee to their users, which is typically tacked onto every bill.
If you don’t want to use a third party or none are available in your locale, you can set up a RUBS system yourself. Here’s how:
Describe each unit by features: For each unit, figure utility usage using an allocation formula you set up. Common components include square footage, total occupants, whether there is a washing machine, number of bathrooms, whether there’s a fireplace, or any other factor you think would be pertinent in determining the cost of utilities.
Calculate ratios: Determine based on the unit what percentage of the bill that household should pay. For example, in a 10-unit building, if the utility bill were $1,000 each month, if everyone paid equally, everyone would pay $100. After you make adjustments based on your formula, you might find that one unit might pay $80 and another $120, for example.
Use a billing system: Find a billing system that will determine the payment based on the ratios you calculated.
Meet with your local utility company: Set up an arrangement that you will pay the master fee to the utility company, and when your tenants pay the utility company, the utility company will reimburse you.
Send a bill to the tenants: Instruct your tenants to pay the bill to the utility company.
The bottom line
Using RUBS might be the best solution for you to recoup your utility costs. You’ll bill your tenants in a fairer manner than a one-price-fits-all method, you won’t have to foot the bill for your tenants’ utilities, and it might be a better solution than installing submeters.
11% of the mega-wealthy swear by this investment…
The richest in the world have made their fortunes in many ways, but there is one common thread for many of them: They made real estate a core part of their investment strategy. Of all the ways the ultra-rich made their fortunes, real estate outpaced every other method 3 to 1.
If you, too, want to invest like the wealthiest in the world, we have a complete guide on what you need to take your first steps. Take the first step toward building real wealth by getting your free copy today. Simply click here to receive your free guide.